April 22nd, 2016
On May 5, when the Consumer Financial Protection Bureau (CFPB) holds its next field hearing, the agency is expected to release its long-awaited proposal for the use of arbitration agreements in select types of consumer financial services contracts.
Last October, the CFPB first announced that it was contemplating rules calling for a ban on ?free pass? arbitration clauses by financial companies and banks aiming to prevent consumers from grouping up to sue for relief. According to a CFPB release, the hearing in early May will feature a statement from the agency?s director as well as testimony from some consumer groups, key industry professionals, and members of the public.
Experienced CFPB watchers have noted that the agency commonly uses field hearings as a venue to announce new developments, and proposed arbitration rules are the most likely subject. In the past, proposed rules announced at hearings have been in near final or final form. If that?s the case again, that would suggest new arbitration rules could be in effect by the end of summer 2017.
What?s actually at issue in the arbitration discussion is the clauses in financial service and product contracts that demand consumers take any disputes to an arbitrator instead of a court. Over the past six months, there have been indications that the CFPB is willing to propose a set of rules that cover a broad range of financial products, including checking accounts, payday loans, student loans, and credit cards.
A 2015 study conducted by the CFPB found that consumers rarely understand arbitration clauses in financial service contracts. In some cases, failure to understand clauses may have dissuaded people from starting or following through with disputes. In response to the study, the agency said it was considering banning contract arbitration clauses that specifically prevent class action lawsuits. Soon after, the CFPB continued the march toward new rules by convening a review panel to collect feedback from the industry.
As observers have noted, the next logical step for the CFPB, based on all the statements and events that have led up to the May 5th hearing, is for the announcement of a ?de facto ban? on arbitration clauses.
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